What Are Overlays?
Overlays are mortgage guidelines imposed by mortgage lenders on top of the minimum mortgage lending guidelines by FHA, VA, USDA, FANNIE MAE, AND FREDDIE MAC. With FHA Loans, FHA sets FHA mortgage lending guidelines with regards to minimum mortgage loan requirements in order for FHA to insure it. For example here are minimum FHA minimum lending guidelines:
1. Minimum credit scores of 580 FICO for 3.5% down payment home purchase loan.
2. Maximum debt to income ratios for borrowers with 620 FICO credit scores or higher is 56.9%. Debt to income ratios of borrowers under 620 FICO credit scores is 43%.
3. Unpaid collection accounts is okay as long as aggregate amount is under $2,000. If unpaid collection accounts are over $2,000, then 5% of the unpaid collection balance will be used to calculate borrower’s debt to income ratios. Borrower does not have to make any payments but 5% of the unpaid debt is just used for income qualification purposes in the event if the unpaid collection account turns into a judgment. Medical collections are exempt.
4. 100% of down payment can be gifted.
5. Judgments: Judgments are acceptable as long as the borrower has a written payment agreement with the judgment creditor and three months of canceled checks can be provided.
Examples Of Mortgage Lender Overlays
California home buyers who are told they do not qualify for a home loan may not qualify due to mortgage lender overlays and not because they do not qualify for a home loan in California. Most California mortgage companies have mortgage lender overlays more so than mortgage lenders in other states. Again, mortgage lender overlays are additional guidelines set by the individual mortgage lenders that are beyond the minimum overlays set by government agencies such as FHA, VA, USDA, FANNIE MAE, and FREDDIE MAC. Here are examples of mortgage lender overlays:
1. FHA loans minimum credit score requirements are 580 FICO credit scores for a 3.5% down payment FHA loans. Many California mortgage lenders have credit score overlays where their minimum credit scores requirement for FHA loans may be 640 FICO. Some are higher while others can do FHA loans with 620 FICO. A California mortgage lender with no overlays on FHA Loans only require a credit score of 580 FICO score.
2. Maximum debt to income ratios for FHA lenders with no overlays is 56.9% for borrowers with 620 FICO credit scores or higher. However, many California FHA mortgage lenders have debt to income ratios overlays where the maximum debt to income ratios are capped at 45%. Some California FHA mortgage lenders with debt to income ratio overlays will go up to 50% debt to income ratios. If you have high debt to income ratios, you need to choose a California mortgage lender with no overlays with regards to debt to income ratios which you can get up to a 56.9% debt to income ratio.
3. You do not have to pay off unpaid collection accounts to meet FHA lending guidelines. However, many California mortgage lenders will not qualify any California mortgage loan applicants with outstanding collection accounts until all collection accounts have been paid off. If you have outstanding unpaid collection accounts, you need to pick a California mortgage lender with no overlays on unpaid collection accounts.
4. Judgments: FHA does not require you to pay off your judgment in full. FHA will allow you to enter into a written payment plan with a judgment creditor and as long as you have been making at least three payments and can show three canceled checks, you will qualify for a FHA loan. Many California mortgage lenders will have overlays on judgments where you need to have the judgment paid off in full before you can qualify for a California FHA loan.
FHA Lenders With No Overlays In California
If you are looking for FHA lenders with no overlays in California, you have come to the right place. We are a no overlay California mortgage lender that specialize in FHA Loans, VA Loans, USDA Loans, and Conventional loans. All of our loan programs in California do not have any lender overlays and we just go off DU FINDINGS and/or LP FINDINGS. Our team of licensed mortgage loan originators are licensed in California and are available 7 days a week to issue pre-approvals. Please contact us at firstname.lastname@example.org or call us at 262-716-8151. Over half of our borrowers are home loan applicants who were told they do not qualify due to their lender overlays. We specialize in home loans with bad credit in California. If you are seeking FHA lenders with no overlays in California, contact us today.
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